Never get between Kerry Stokes and a cheap spanner, let alone an undervalued multibillion-dollar industrial group.
The announcement of his intent to acquire BlueScope’s Australian assets, in tandem with US group Steel Dynamics which wants the US-based business, will be pursued with the ruthlessness with which he mopped up Boral in 2024 with little resistance.
It was a multibillion-dollar deal that paid off in spades for Stokes and his fellow Seven Group (Now SGH) investors. The deal helped the group triple its share price in just three years.
This is why the industrial might of SGH accounts for most of his $13 billion fortune which has soared on the back of Australia’s mining and infrastructure boom.
It starkly contrasts with his stake in the recently discarded Seven West Media which would barely cover the cost of a harbour-front mansion in Sydney.
The interesting part of the announcement is where Stokes, via SGH, states that the US and its other assets “are not strategically compatible”.
It’s no coincidence that this strategic incompatibility has arisen since Trump regained the White House.
His tariff chaos has sent the economics of BlueScope’s US business, and its rest-of-world operations which are led by Australia, in opposite directions.
BlueScope shares hit multi-year highs in February last year when Trump’s 25 per cent tariffs on steel imports ensured a significant price, and profit, boost for the 3 million tonnes of steel it produces in the US.
Steel Dynamics had already made its first of four offers for the BlueScope business, details of which became public only on Tuesday.
“These approaches were rejected as they significantly undervalued BlueScope and its future prospects, and presented significant execution risk in relation to regulatory outcomes,” BlueScope said on Tuesday.
BlueScope confirmed that last year’s rejected bids valued the US business at around $24 a share and the rest of the group at just $9.
Steel Dynamics hopes to cash in on Trump’s grand hope that his tariffs will shut overseas producers out of the US and encourage more local manufacturing. Meanwhile, US-based producers such as BlueScope and Steel Dynamics are making a killing.
As analysts from Morningstar recently noted, underlying earnings are expected to jump more than 40 per cent this year “driven by higher steel prices and volumes in its North America business, which comprises about half of our forecast. Tariffs have pushed steel prices higher than a year ago and increased demand for locally produced steel rather than imports.”
This is why US steel producers such as Steel Dynamics have BlueScope’s market-leading US assets in their sights.
The problem for the rest of BlueScope’s business is that all of that surplus of steel being churned out in China has not gone away.
The loss of the US market means the 110 million tonnes of steel China exports there every year has to find a new home in places such as Australia, and in markets where BlueScope sells its products overseas, such as South-East Asia.
“We need a really strong, diligent, effective, quick-to-act anti dumping regime, or … we’ll see material flow from other parts of the world and come to our country and undermine our domestic manufacturing capacity,” BlueScope boss Mark Vassella warned last year.
Presumably it is all someone else’s problem now, with Vasella due to step down at the end of the month, to be replaced by BlueScope veteran Tania Archibald.
The big question to be answered is whether this is just step one of a much larger play by Stokes.
BlueScope is seen as a crucial contender for the failed Whyalla Steel business in South Australia which is expected to receive a massive government bailout to help upgrade its operations and make it sustainable and competitive in a global market.
Kerry Stoke’s verdict on Whyalla’s attractiveness as a business would be fascinating.
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Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.
